What is a Recession?
A recession is a steep decline in the economic activity of a nation. Some economists confirm a recession when an economy suffers negative growth in its gross domestic product (GDP) for two consecutive quarters. The National Bureau of Economic Research (NBER) determines that an economy is in recession if there is a significant decline in economic activity that is spread across the country and lasts for more than a few months. Generally, there are certain factors that point to this condition. Some of these other factors include rising levels of unemployment, a decline in income, layoffs, and a drop in the manufacturing sector for months or years.
In a recession, economic activity is slow, and a decline in one area can cause a chain reaction that affects other areas. For instance, a decline in income will lead to a decline in consumer demand which ultimately affects manufacturing. Companies that are into manufacturing will then lay off staff to remain profitable, and this leads to a rise in unemployment.
There are different factors that can cause an economy to go into recession including sudden economic events. For instance, a sudden and sharp drop in the global supply of oil can lead to high prices which impact other goods. Huge debts, which accrue and become almost unserviceable, can slow down an economy and even tip it into recession. Unchecked inflation and asset bubbles are two factors that can also lead to a depression. In some cases, an economic decline suffers from several of these factors.
The Great Depression, which happened between 1929 and 1941, was the longest and most severe recession in modern history. The era saw massive job losses, economic declines, and the stock market crash of 1929. Governments around the world have put measures in place to prevent a repeat of a recession on that scale. Some of the fiscal policies include unemployment insurance, which credits money to the unemployed, and tax breaks for businesses.